What Are Unsecured Loans?
Unsecured loans refer to any amount of money given to another person that has not been legally collateralized. Collateral operates on the basis of one person giving another person some money, and if the person being lent the money does not pay the lender back, then the lender can take possession of something of equal or greater value that has been given up by the lendee as a type of insurance on the money being paid back. Therefore, it can be seen as a type of trust system or verbal contract, not recognized in the legal system as something which needs to reach a conclusive paid state.
As such, systems like debt management do not work here, because there is nothing that a third party can or would do to help an individual pay back something that does not require him or her to even pay it back in the first place. It is much riskier for a lender to give out money in this fashion, as there is no guarantee that they will receive compensation for it from the people whom they are giving the loan.
How Unsecured Loans WorkUnsecured Loans Example #1. Anytime a friend, relative, or associate gives money to another person without a contract or a declaration of terms. This is considered an unsecured loan. There is no obligation for the person being lent the money to pay it back, outside of an agreement with someone who has trusted them enough to give them the money.
This type of event is often settled in small family courts, when an unreliable lendee outright refuses or unacknowledged his debts and the situation comes to a head. Indeed, many relationships have been ruined because of them.
Unsecured Loans Example #2. Medical bills (for emergency operations and the like, most prominently) operate under the same principles. This is especially true if the medical practitioner has given a treatment to an individual without first reaching an agreement of terms. This does not apply to things like routine hospital visits or tests, where the person signs a contract upon their entry. Any physician work not accounted for is based on conditions for unsecured loans. Payday loans are available on request for anyone who cannot make a payment on time for their expenses.
Unsecured Loan Example #3. Every time a purchase is made on a credit card, it also operates under the foundation of unsecured loans. The money for services or products are charged to the company that has lent the individual a credit card, and it is up to them (based on an agreement) to pay back everything that the credit card company pays for, along with interest.
If the individual fails to pay the bill, then the company may pursue legal matters, but there are no guarantees that they will be able to get anything from the lendee under their own terms. People in college tend to use credit cards for extraneous purchases, sometimes in addition to having to pay their student loan off.
More Information on Unsecured Loans
There are several ways to get a loan, even cheap loans, and these unsecured variants are among the easiest to get. In fact, there are even bad credit loans available from companies for those who do not have the greatest credit score.
With all of these options available, more and more people are sure to receive money that they have difficulty paying off. Luckily, in many cases, there is enough honesty in a person to pay back an unsecured loan, if it is in their means, and others.